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Integrating Asset Building Opportunities
Posted on 03/22/2011 @ 01:00 PM
Our guest blogger today is Tracy Fischman, executive director at AccountAbility Minnesota. This highly innovative organization has been a partner with CFED’s Self-Employment Tax Initiative (SETI). As this year’s April 18th tax deadline draws near, certain for-profit tax preparers are marketing “refund anticipation loans” or similar products which are overpriced and inappropriate for most people, so Tracy’s information is particularly timely.
AccountAbility Minnesota was founded in 1971 by a group of justice-minded accountants who believe that a person’s ability to access quality tax preparation and financial services should not rely solely upon one’s ability to pay. Enlisting the help of hundreds of volunteers, the organization offers free tax preparation and financial services at 13 sites in the Twin Cities that enable low- and moderate-income individuals and families to maximize the opportunity that tax time provides. (Customers can use our online clinic finder to find a list of locations, schedules, and eligibility.)
In 2010, we helped 11,000 taxpayers received $21 million in refunds. We also trained 15 organizations throughout Minnesota who in turn helped another 9,000 taxpayers receive an additional $14 million in refunds. At AccountAbility Minnesota, we recognize that it is expensive to be poor. The customers we serve – whose average income is $13,400 – too often have to spend their money just to access it. And tax time is no different. As such, we’ve adopted strategies to promote economic security through the tax preparation process. With tax credits designed to significantly boost incomes of low-wage earners, tax time provides a unique moment to begin or continue a conversation about saving. It also offers an essential alternative, by way of education and services offered, to paid preparers and fringe – often predatory – financial products they offer, like the Refund Anticipation Loan.
The money-moment that tax time provides
AccountAbility Minnesota is uniquely positioned to reach underserved families and communities with financial education and information about saving, money management, developing and keeping a budget, planning and more. Tax time is a prime time to educate and offer services that can put people on a path towards financial security – empowering them to make informed and effective decisions that reflect their individual circumstances. Over the years, AccountAbility Minnesota has innovated and partnered with other organizations and financial institutions to expand its financial services, offering non-predatory services and products that promote savings and asset development. Our financial services include free savings accounts, low-cost prepaid debit cards, free credit reports, financial planning and benefits screening.
Update on Refund Anticipation Loan market
As previously referenced, may low-income taxpayers are targeted by paid preparers offering costly products that promise fast refunds. In recent years, the most common product has been the Refund Anticipation Loan (RAL). RALs are short-term, high-interest loans secured by a taxpayer’s expected tax refund. According to the National Consumer Law Center, 8.4 million persons in the U.S. spent an estimated $738 million in RAL fees in 2008. This year the IRS has terminated access to its debt indicator – a tool used by tax preparers and related financial institutions that offered information about whether a taxpayer will receive their federal refund and therefore was used to determine whether to underwrite a RAL. Thus H&R Block is not providing RALs this year but Jackson Hewitt and Liberty Tax Services (and possibly others) are still offering the product. We were excited to see that the FDIC has recently notified both Jackson Hewitt and Liberty Tax Service that their RALs are “unsafe and unsound.” As the RAL market shifts, other products are popping up in its place, such as the Refund Anticipation Check (RAC). A RAC is a temporary bank account that is opened to allow for direct deposit, and taxpayers’ refunds are then uploaded onto a prepaid debit card or they are issued a paper check. In 2008, about 12 million taxpayers received a RAC at a cost of $360 million. With information provided by our partners studying this market, we are keeping an eye on RALs, what the FDIC’s recent notice will mean, and what products are popping up in its place. We will continue to innovate, offering financial services and products that meet the financial needs of our customers.
In a future Blog, Tracy will describe some of AccountAbility’s latest innovations. Please let us know your thoughts and questions on Tracy’s message.
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